Dennis and Department of Family and Community Services

[2000] AATA 853

DECISION AND REASONS FOR DECISION [2000] AATA 853

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No. Q1999/910

GENERAL ADMINISTRATIVE DIVISION        )          No. Q1999/911

Re      JOHN DENNIS       
  First Applicant
           Re      CATHLEEN DENNIS        

Second Applicant

And    SECRETARY, DEPARTMENT OF FAMILY & COMMUNITY SERVICES  
  Respondent

DECISION

Tribunal       Mr K L Beddoe (Senior Member)

Date26 September 2000

PlaceBrisbane

Decision      The Tribunal decides: (a)    the decisions under review are set aside; (b)     the first applicant did not dispose of an asset; and (c)     the matters are remitted to the respondent to give effect to the Tribunal's decision.  

Decision No. 853/2000  (Sgd)  K L Beddoe
  Senior Member
CATCHWORDS
SOCIAL SECURITY : Assets test – Disposal of assets –– Whether a reduction in pension entitlement – When interest in a deceased estate received – Whether residuary beneficiary has an equitable proprietary interest before administration is complete

Social Security Act 1991 – s11, s1118(1), s1123, s1126
Succession Act 1981 (Qld) – s5, s34, s35

Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12 (PC); 107 CLR 411 (HC)
Official Receiver in Bankruptcy v Schultz and another (1990) 170 CLR 306; 96 ALR 327

REASONS FOR DECISION

26 September 2000 Mr K L Beddoe (Senior Member)            

1. The applicants seek review of a decision by the respondent to the effect that the male applicant disposed of an asset so as to bring section 1126 of the Social Security Act 1991 ("the Act") into effect. That decision was subsequently affirmed by the Social Security Appeals Tribunal. In fairness to that Tribunal it must be said that it did so with some evident reluctance.

2. The essence of the operation of the assets test is that where there is an "assets excess" then the assets test may result in a reduction of pension entitlement.  The operation of the test is not in issue here.

3. Certain assets (defined by section 11(1) of the Act to mean property) are to be disregarded in calculating the value of a person's assets including:

   s1118(1)(h)the value of any contingent, remainder or reversionary interest of the person (other than an interest created by the person's partner or by both of them);

   s1118(1)(j)the value of any assets (other than a contingent, remainder or reversionary interest) to which the person is entitled from the estate of a deceased person but which has not been, and is not able to be, received.

1. Section 1123 of the Act relevantly defines disposal of assets as follows:

   1123(1)  For the purposes of this Act, a person disposes of assets of the person if:

   (a)       the person engages in a course of conduct that directly or indirectly:

   (i)        destroys all or some of the person's assets; or

   (ii)       disposes of all or some of the person's assets; or

   (iii)      diminishes the value of all or some of the person's assets; and

   (b)       one of the following subparagraphs is satisfied:

   (i)the person receives no consideration in money or money's worth for the destruction, disposal or diminution;

   (ii)the person receives inadequate consideration in money or money's worth for the destruction, disposal or diminution;

   (iii)the Secretary is satisfied that the person's purpose, or the dominant purpose, in engaging in that course of conduct was to obtain a social security advantage.

   1123(2)  For the purposes of subsection (1), a person has a purpose of obtaining a social security advantage if the person has a purpose of:

   (a)obtaining a social security pension, a social security benefit, a non-benefit PP (partnered) or a service pension, or enabling the person's partner to obtain such a pension or benefit or a youth training allowance; or

   (b)obtaining a social security pension, a social security benefit, a non-benefit PP (partnered) or a service pension, or enabling the person's partner to obtain such a pension or benefit or a parenting allowance; or a youth training allowance at a higher rate than would otherwise have been payable; or

   (c)ensuring that the person or the person's partner would be qualified for fringe benefits for the purposes of this Act or the Veterans' Entitlements Act.

1. Section 1126 of the Act has the effect of adding back the amount of the disposition of the asset to the extent that the amount of the disposition exceeds the disposal limit with 50% attributable to each partner.

2. At the hearing the applicant's conducted their own case and Mr Walsh represented the respondent. The documents lodged in the Tribunal pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 were before the Tribunal as the T documents. Oral evidence was given by the applicants.

3. I make the following findings of fact.

   (a)By applications dated 9 January 1997 the applicants together claimed payment of age pensions as a married couple.

   (b)Payment of pensions was apparently granted but nothing turns on this.

   (c)Mr Dennis' son (Graeme) died on 20 March 1998.

   (d)Prior to his death Graeme had given instructions to a solicitor to prepare a will leaving his estate in essence as to half for his father and half for his brother – his mother having predeceased him.

   (e)The solicitor prepared a will in accordance with the instructions but Graeme did not execute the will prior to his death.

   (f)In the result Graeme died intestate, there apparently being no earlier valid will, and Mr Dennis was the sole beneficiary of his son's estate because of the operation of section 35 of the Succession Act 1981 (Qld).

   (g)A consequence of the operation of section 35 was that Graeme's intention to leave half of his estate to his father and half to his brother, as evidenced by the unexecuted will (T39) was frustrated.

   (h)Following his son's death Mr Dennis who was administrator of the estate, instructed the solicitor to give effect to the unexecuted will thereby causing a one half share of the residual estate to be payable to his son, Peter, with the remaining half share payable to himself.

   (i)The solicitor was not called to give evidence but I adopt the following findings by the Social Security Appeals Tribunal:

   "After the date of the hearing, the Tribunal spoke to Mr John Sherwood, the solicitor who attended Graeme at hospital to take instructions for the preparation of his will.  Mr Sherwood said that in early February 1999 (sic) he had taken instructions from John Dennis to prepare an Enduring Power of Attorney and also preliminary instructions for Graeme's will.  He said that he attended the Princess Alexandra Hospital on or about 11 February 1999 (sic) to see Graeme for the purposes of taking instructions for his will.  At that time he said that Graeme seemed quite well.  Mr Sherwood took handwritten notes as he was taking instructions and offered to fax them to the Tribunal.  He said that the handwritten notes formed the basis for the preparation of the formal document.  The Tribunal asked Mr Sherwood whether he had his bedside notes executed so that they may be construed as a valid will.  He said that he did not as there was no suggestion of urgency in this case."
   (It is clear that the SSAT was referring to dates in 1998).

   (j)I am not aware of any explanation for the lapse of time between instructions being taken in mid-February 1998 and death on 20 March 1998 in relation to the non-execution of the will during that time.

   (k)In the week following Graeme's death Mrs Dennis approached Centrelink seeking advice as to the effect of Mr Dennis waiving his right to half of the estate (essentially Graeme's interest in a superannuation fund) in favour of his other son.  The applicants understood the provided advice to be that if the waived interest in the estate was not received it would not be taken into account for assets test purposes.  In January 1999 that advice was changed to the respondent's present position.

   (l)Document T18 includes a copy of the solicitor's administration statement dated 24 March 1999.  It includes the following entry:

   "on the instructions of Mr J.H. Dennis paid to Mr P.J. Dennis $79,000."

(m)The solicitor's administration statement also includes a payment to the solicitor of $270 for an outstanding account which I accept relates to the unexecuted will.

(n)The residual value of the estate was paid to Mr Dennis and his son on or about 19 March 1999 in an amount of $79,000 each.

(o)I am satisfied and find that Mr Dennis instructed the solicitor to give effect to the unexecuted will as a matter of conscience and good faith because he felt obliged to give effect to his deceased son's apparent intentions in relation to his estate.  It is not apparent to me that the first applicant had any other purpose and I so find.

Consideration

1. Section 35(1) of the Succession Act 1981 (Qld) ("the Succession Act") determines "the person or persons entitled to take an interest in the residuary estate of an intestate". Entitlement is determined by reference to Schedule 2 of the Act according to the facts and circumstances existing in relation to the intestate. Part 2 of Schedule 2 determines, on the facts of this case, that Mr Dennis is entitled to the whole of the residuary estate.

2. Section 34(1) of the Succession Act defines "residuary estate" in relation to an intestate to mean, in the case of an intestate who does not leave a will, the property of the intestate which is available for distribution after payment thereout of all such debts as are properly payable thereout.

3. "Property" is defined by section 5 of the Succession Act to include real and personal property and any estate or interest therein and anything in action or any other right.

4. Entitlement to take an interest in the residuary estate of a person who dies intestate is not to be equated with a beneficial interest in a trust estate.  That was made clear by the advice of the Privy Council in Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12 (PC) (1960) 107 CLR 411 (HC). One of the issues in Livingston was whether the deceased person (who resided in New South Wales until her death) had, at the time of her death, a beneficial or proprietary interest in any property in Queensland.  The interest sought to be assessed for duties was the deceased's interest in her deceased husband's not fully administered estate – the estate including property located in Queensland.  It was submitted that the interest was an interest in personam ad rem located in New South Wales so that there was no assessable proprietary right in Queensland because the deceased did not have any relevant beneficial interest in property.

5. The Court delivered separate judgments.  The judgment of Kitto J, who was in the majority, is instructive as to basic principles.  At pages 450-1 his Honour stated:

   "Again, in Barnardo's Homes v Special Income Tax Commissioner [1921] 2 AC 1, the question whether, so long as a testator's estate is not fully administered, the income produced by its assets is income of the residuary beneficiaries was decided in the negative upon consideration of the rights which constituted the beneficiaries' interests in that income.  It was because those rights were adjudged not to be sufficiently direct and exclusive that a negative answer to the question was returned.  The point which the lastmentioned case emphasises is that the rights of residuary beneficiaries while administration is incomplete stop short of entitling them to any of the assets in specie, or to any of the income in specie, or to any property or any part or share of property into which either the assets or their income may be converted.  The beneficiaries are entitled only to receive, eventually, a share of whatever turns out to be left when the administration is complete; and that may not include any of the existing assets or their income, or anything representing either, for conceivably an asset may be sold and its proceeds used up in the process of administration, and the income may be similarly absorbed.  Of course the beneficiaries' rights are rights with respect to, or "in", or ad each specific asset for the time being in the estate; but the important point to notice is that each such asset is liable, in the very working out of those rights themselves, to disappear from the estate.  In other words, the nature of the beneficiaries' interests in the particular assets necessarily accords with the nature of their interests in the residue as a whole."

1. The advice of the Privy Council includes the following at pages 17-18:

   "When Mrs Coulson died she had the interest of a residuary legatee in his testator's unadministered estate.  The nature of that interest has been conclusively defined by decisions of long established authority, and its definition no doubt depends upon the peculiar status which the law accorded to an executor for the purposes of carrying out his duties of administration.  There were special rules which long prevailed about the devolution of freehold land and its liability for the debts of a deceased, but subject to the working of these rules whatever property came to the executor virtute officii came to him in full ownership, without distinction between legal and equitable interests.  The whole property was his.  He held it for the purpose of carrying out the functions and duties of administration, not for his own benefit; and these duties would be enforced upon him by the Court of Chancery, if application had to be made for that purpose by a creditor or beneficiary interested in the estate.  Certainly, therefore, he was in a fiduciary position with regard to the assets that came to him in the right of his office, and for certain purposes and in some aspects he was treated by the Court as a trustee.  "An executor", said Kay J in In re Marsden (1884) 26 Ch D 783 at 789, "is personally liable in equity for all breaches of the ordinary trusts which in Courts of Equity are considered to arise from his office."  He is a trustee "in this sense".
   It may not be possible to state exhaustively what those trusts are at any one moment.  Essentially, they are trusts to preserve the assets, to deal properly with them, and to apply them in a due course of administration for the benefit of those interested according to that course, creditors, the death duty authorities, legatees of various sorts, and the residuary beneficiaries.  They might just as well have been termed "duties in respect of the assets" as trusts.  What equity did not do was to recognise or create for residuary legatees a beneficial interest in the assets in the executor's hand during the course of administration.  Conceivably, this could have been done, in the sense that the assets, whatever they might be from time to time, could have been treated as a present, though fluctuating, trust fund held for the benefit of all those interested in the estate according to the measure of their respective interests.  But it never was done.  It would have been a clumsy and unsatisfactory device, from a practical point of view; and indeed it would have been in plain conflict with the basic conception of equity that to impose the fetters of a trust upon property, with the resulting creation of equitable interests in that property, there had to be specific subjects identifiable as the trust fund.  An unadministered estate was incapable of satisfying this requirement.  The assets as a whole were in the hands of the executor, his property; and until administration was complete no one was in a position to say what items of property would need to be realised for the purposes of that administration or of what the residue, when ascertained, would consist or what its value would be."

1. In Official Receiver in Bankruptcy v Schultz and another (1990) 170 CLR 306, 96 ALR 327 (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ) the Court considered Livingston and concluded at CLR 313-4; ALR 331-2:

   "The right which any beneficiary has in an unadministered estate springs from the duty of the executor to administer the estate, to preserve the assets and to deal with them in the proper manner.  Each beneficiary has an interest in seeing that the whole of the assets are treated in accordance with the executor's duties.  In that sense, the beneficiaries as a class may be said to have an interest in the entire estate.  But it does not follow that each piece of property which goes to make up the estate is held on a particular trust for the beneficiary named as its intended recipient upon completion of administration Horton v Jones (1935) 53 CLR 475 at 486.  Whether or not the estate is held on a trust for the beneficiaries as a class in the usual sense in which the word "trust" is used, so as to confer a specific proprietary interest, as distinct from a general, non-specific interest, upon all beneficiaries, is not something which arises for consideration in this case.
   Nevertheless, Mrs Schultz acquired upon the death of Mrs Pereira a right to have the deceased estate administered in accordance with the duties of the executors.  Though not the legal or equitable owner of the assets which were the subject of the devise and bequest in her favour, she had, by virtue of the chose in action created by that devise and bequest, an expectation that the assets would pass to her upon completion of the administration, subject to their being realised to meet any outstanding liabilities and to defray the costs of administration, and an interest in respect of those assets.  That interest was derived from and dependent upon the chose in action.  The interest is of such a kind that, when a beneficiary transmits a chose in action (or part thereof), or that chose in action passes by operation of law, such as under the Bankruptcy Act, that transmission naturally encompasses not only the chose in action but also the expected fruits of that chose in action:  Horton v Jones; Re Leigh's Will Trusts [1970] Ch 277 at 282".

1. It seems clear that while the estate was in the course of administration Mr Dennis, as the residual beneficiary, had a chose in action being the right to have his son's deceased estate administered in accordance with the requirements of the Succession Act in particular and generally. That was a proprietary right in the sense that the chose in action is correctly characterised as property and therefore an asset for the purposes of the Act.

2. In alienating half of his expected fruits of that chose in action he did not in any sense transfer the rights to due administration (the chose in action); he maintained those rights as his own.  It was essential to his purpose that he did not transmit the chose in action.  That is the point of distinction between this case and what occurred in Schultz.  There the chose in action transmitted to the Official Receiver so that the fruits of the chose in action eventually became part of the bankrupt estate.

3. Here the relevant asset is the property of the estate which is available for distribution following due administration of the estate.

4. It follows that the applicant, Mr Dennis did not dispose of some of his assets when he directed himself, as administrator of the intestate estate, and the solicitor acting on his behalf to administer the estate giving effect to the unexecuted will.  The chose in action remained his property, he did not confer any rights on his surviving son when he made the direction.

5. When he made the direction Mr Dennis had no relevant proprietary interest in the residual estate and therefore it cannot be the case that he diminished the value of his assets.  Clearly he diminished the value of his expectation but that expectation is not a proprietary interest capable of being regarded as property and therefore an asset.  We may well have a well founded expectation that a backed horse will win a race but until it does we do not have an asset.  Similarly a residual beneficiary of a deceased estate must wait for the due administration of the estate before any expectation as to the fruits of the estate is realised and becomes an asset.

1. Mr Dennis did not diminish the value of his assets.  Neither did he destroy all or some of his assets.  He merely reduced his expectation as to what he would eventually realise from the estate.

2. Section 1123 of the Act does not operate on the facts of this case so that there is no relevant disposal of assets for the purposes of section 1126 of the Act. That latter section has no operation.

3. In the alternative I am also satisfied that section 1118(1)(j) applies on the facts of this case.  The half interest paid to the first applicant's son has not been received and is not able to be received by the first applicant.  I assume that the son would have a sound defence if the first applicant sought to recover the $79,000 from him.

4. The decisions under review will be set aside and a decision made that the first applicant did not dispose of an asset when he directed that his deceased son's intestate estate be administered as if the unexecuted will was effective to distribute the residual estate.

5. Both matters will be remitted to the respondent to give effect to the Tribunal's decision in the first applicant's case.

   I certify that the 24 preceding paragraphs are a true copy of the reasons for the decision herein of Mr K L Beddoe (Senior Member)

   Signed:         
     T G Lowther
      Associate

   Date of Hearing  10 March 2000
   Date of Decision  26 September 2000
   Representative for the Applicants        In person
   Representative for the Respondent     An officer of the Department